Equifax warns of growing affordability pressure as borrowers opt for longer repayment periods amid uncertain rate outlook
The prospect of interest rate reductions has all but disappeared for the foreseeable future, according to Equifax UK, which issued the warning ahead of the Bank of England Monetary Policy Committee's rate decision later this week.
The MPC is expected to hold the base rate at 3.75% at its Thursday meeting, with analysts now broadly expecting no movement following a softer-than-expected inflation reading for June. The Consumer Prices Index rose by 2.6% in the 12 months to June, down from 2.8% in May, according to the Office for National Statistics. Economists had forecast a fall to 2.7%, making June's outturn a modest beat.
However, the reprieve may be short-lived. Analysts warn that inflation is likely to rebound in July after the Ofgem energy price cap rose by 13% at the start of this month. The broader rate environment has shifted sharply from the cut-focused expectations that prevailed earlier in the year. Before the conflict in the Middle East broke out, two rate cuts were expected in 2026.
At its June meeting, the MPC voted by a majority of 7–2 to maintain Bank Rate at 3.75%, with two members voting to increase it by 0.25 percentage points to 4%. That dissent — the first vote for a rate increase in the current cycle — marked a notable shift in the committee's internal balance. The meeting took place against an unusually complex backdrop, with the conflict in the Middle East creating significant uncertainty around global energy prices and the UK's inflation outlook.
Paul Heywood (pictured right), chief data and analytics officer at Equifax UK, said borrowers on variable mortgage rates should not expect relief on their monthly payments this year, with the risk of rate increases adding further uncertainty for households. "The door looks firmly shut on the prospect of rate cuts for the foreseeable future," he said.
"Those on variable mortgage rates are unlikely to see any reduction in their monthly bills this year, while the rising possibility of rate hikes is adding another layer of uncertainty to households, which have so far proven resilient but are without doubt feeling the squeeze."
Equifax data indicates that one in 10 new UK mortgages are now being arranged on terms of 35 years or longer, as borrowers extend their repayment periods to reduce short-term monthly outgoings at the cost of higher overall repayments.
For brokers advising clients, the message from industry figures is that waiting for a better rate may carry its own risks. "Inflation ticking down is a reminder that in today's geopolitical climate, mortgage rates don't stay predictable for long," said Ben Thompson, director of home moving strategy at Mortgage Advice Bureau. "This drop puts the Bank of England's next move back in the spotlight - albeit we currently expect no further increase to the base rate, as domestic economic performance still remains weak."
Thompson cautioned against passivity: "Whether you're a first-time buyer or a remortgager coming off a cheaper fixed deal, it's worth exploring options sooner rather than waiting later to see what happens. For both groups, locking in a rate you're comfortable with now is often a smarter move than waiting on the chance of a better one later."
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